CIP C111

- Basically, when the third party could have or did become aware of the damage or injury the CGL policy in place would respond - Ex: You have been exposed to coal dust and after many years become ill as a result. The symptoms are considered manifestations of the illness. The policy in effect when the symptoms occurred would respond - The same theory can be applied to property claims. Ex: road salt causing concrete to deteriorate after many years. When the concrete starts to crumble, CGL coverage may be triggered. Exposure Theory - Holds that any policy in place during the time that the claimant was exposed to the harmful conditions would respond. - IF the injured party worked in harmful conditions from 1950-1965 and symptoms manifested in 1992. Policies insuring from 1950 – 1965 would be triggered under this theory. Continuous or Triple Trigger Theory - This theory identifies 3 events that trigger coverage 1. During the exposure to the offending product. Ex: inhalation of coal dust in coal miner claims 2. During the latency period when the disease is progressing but there is not necessarily any further exposure to the damaging substance and symptoms do not exist yet 3. When the injury manifests itself - The argument is that the disease is progressing continuously since initial exposure and all policies in effect over the periods would be activated. Injury-in-fact Theory - Holds that a policy would respond if damage occurred during the policy period, whether or not anyone could have been aware of it and regardless of when the negligent act or omission took place - All policies in effect during the period the injury occurs would be triggered, not those that were in effect when the claimant was exposed to the harmful conditions. - It has been held that injury occurs as the person inhales/ingests the harmful substance. Injury or damage not detected at the time of the injury will not affect the application of this coverage. Canadian Approach to Trigger Theories - There is no uniformity of opinion on the coverage trigger theories - The trend is to adopt the injury-in-fact theory for bodily injury cases and the manifestation theory in property damage cases - When applying any of the theories, specific facts and their presentation to the judge/jury are critical - It is up to the adjuster to gather and preserve evidence that could help asses when the damage occurred and theories must be analyzed in light of the evidence and policy wordings. - Trigger theories attempt to pinpoint when damage occurred. Claims-Reporting Condition in the CGL Policy - Insureds must abide to the claims-reporting condition to avoid breach of contract - There may be situation where an insurance company was prejudiced when a claim was reported late - CGL policies have typical wording for the claims-reporting condition, however some wordings may expand on the duties.

Verifying Existence of the Policy - It can be difficult to verify the existence of a policy, the limits, and wording. - If wordings have been destroyed other records may still exist, record of premium, previous claim files, policies issued afterwards may note prior policy numbers, etc Establishing the Timing of an Event - Leaking may have occurred at an unknown date, adjusters have to try and establish when the leak occurred - Liability policies do not cover costs to prevent a claim. If costs are incurred to contain a spill that could lead to damage they will likely not be covered - Privest Properties v. Foundation Company of Canada – Insurer tried to deny coverage for asbestos removal before a renovation due to there not being property damage. The court ruled that there was damage, the bldg. was impaired, it could not be renovated until it was removed. - Significant investigation is required when many years have passed. - Estoppel – is a serious concern. It is a bar created when someone by action, or lack of action, indicates that he will not exercise a right they have. - Typically, insurers will ask the insured to sign a non-waiver agreement or send a reservation of rights letter to the insured. - Non-waiver agreement – an agreement signed by the insured after a loss, agreeing that the investigation and determination of the amount of damage by the insurance company shall not be construed as an admission of liability. Used when the insured is in violation of a policy condition. - Reservation of rights letter – An insurer’s notice to an insured that coverage for a claim may not apply. It allows the insurer to investigate (or even defend) a claim to determine whether coverage applies without waiving its rights. - Adjusters need to communicate why coverage may be questioned, esp if the claim arose yrs ago. - Late reporting is a serious issue and could be considered prejudicial to the insurer. - Facultative Reinsurance – reinsurance of risks on a case-by-case basis subject to the acceptance or rejection by the insurer - Reinsurance agreements may contain a sunset clause. This clause limits coverage to losses reported within a prescribed period. It limits the reinsurer’s exposure to long-tail liability which is relevant to enviro claims Pollution Exclusions - Most liability policies contain a pollution exclusion. - Older forms may contain limited coverage for certain events while new wordings contain a comprehensive exclusion with options to buy back limited pollution coverage. - Certain policies that include coverage for certain sudden and accidental losses have had mixed judicial interpretations. - Broad wording of pollution exclusions has led to confusion about its intention, the words irritant and contaminant are generally recognized as polluting the environment. - A substance that can cause harm is not necessarily a pollutant, a pollutant is toxic and a potentially harmful material that is recognized by an industry or government regulator. Property Under the Control of the Insured - Property that is owned, occupied, or rented by the insured is excluded in most liability policies - More current policies also exclude real property

o Identify policies that the current insurer is involved with o Defence costs o Consideration of a defence sharing agreement, if other insurers are at risk o Estimated cost of defending any coverage issues Chapter 2 – Liability Injury Claims 1 – Investigating Bodily Injury Claims Evaluating Policy Coverage - Insurers owe insured a defence for allegations that fall within the insuring agreement. - Insureds are entitled to be indemnified if found legally liable. - The idea of paying defence costs is a major incentive for insurers to actively seek resolution even if coverage is questionable - The insurer, insured, and broker may have influence on how claims are handled. Business ethic and reputation may also be considered Examine the Policy Wording - Adjusters may find it useful to examine policy wordings in the following order: o Review effective and expiry dates to ensure the loss falls within the policy period. o Review declarations or definitions to determine who is the named insured, policy period retroactive dates, and the limits of insurance. o Review who qualifies as an insured under the policy in addition to the named insured.  Adjusters need to confirm what corporate entity named in the legal action qualifies for defence under the policy, sometimes subsidiaries or parent companies have separate policies  Corporate searches of company history over periods of time may be required, esp. when the loss spans a period of time (environmental losses). o Review the insuring agreement. Does the claim fall within the agreement, does it qualify as an occurrence under the policy, has coverage been triggered?  Adjuster’s need to determine when events took place and what event (if any) triggered coverage. Theories of coverage triggers can be applied to analyze whether coverage applies. o Do exclusions apply? o Do any exceptions to the exclusions apply? o How do policy definitions for special terms modify coverage? o How are limits of insurance applied? o What endorsements (if any) affect coverage? o What deductibles apply? o What policy conditions apply to the claim under review? Is there a possibility that a condition may have been breached? - The insured must prove that the loss falls within the scope of the insuring agreement and the onus shifts to the insurer to prove that an exclusion applies. - The size and severity of the claim determines how extensive the investigation needs to be

- Hold-harmless – an agreement that allows one party to protect another party against any future losses or claims that may result from a particular activity. Also known as an indemnity agreement. Causation - Claimants must show that the accident caused or contributed to their injury and the insured was negligent. - A claimant’s susceptibility to injury does not relieve the negligent party from liability. - If the claimant has a previous condition without any recognized symptoms before the accident, in law the accident who qualify as the cause of the new injury allowing the claimant to recover damages in full. - Courts have used the term materially contributed to establish negligence on the part of a wrongdoer when there are multiple causes for an injury - An insured would be liable even if their actions alone were not enough to cause the injury as long as he or she materially contributed to the cause of the injury - The thin skull legal theory states that the defendant must take the victim as he or she is. When a claimant is susceptible or vulnerable to injury, the courts will establish causation in relation to each individual and it will not be measured against the average person - If the claimant pre-accident functioning make the effects of an injury more severe than for the average functioning individual, the claimant is still entitled to full compensation for the effects of the injury. Independent medical reports would be required to determine if the injury was inevitable given the per-existing conditions. Ex: pg 2-11. Sharing Liability and Contributory Negligence in Bodily Injury Claims - As fact unfold, adjusters need to be mindful of other parties who could be held responsible. - Other parties include anyone with financial interest, additional named insureds, or the claimant themselves. - Liability against the insured can be reduced when there is contributory negligence on the part of the claimant. Ex: running down icy steps when you knew they were icy. - Another party could be added to the action fi that party was involved in the negligent activity. - Joint Tortfeasors – 2 ore more ppl who by design are partners in a tort. - Joint and Several Liability – a claimant may pursue an obligation against any one party as if they were jointly liable and if becomes the responsibility of the defendants to sort out their respective proportions of liability and payment. - Another tortfeasor can affect loss reserves. Adjustors must consider if the tortfeasor is financially able to satisfy a judgement. If not, the claimant has the option to sue the party who is able to fulfill the judgement. - Intervening events can have the effect of joining another tortfeasor. Ex: an inspector approves a handrail that was incorrectly installed. If the inspector approved, it knowing it was incorrectly installed they can be found fully liable. - When medical treatment aggravates injuries, the insured is typically still found fully liable, unless the treatment was beyond a mere error in judgement, and it was pure negligence. - Mitigate the injury – claimants have a duty to mitigate their losses and this needs to be communicated to claimants.

- Employers are contacted to confirm wage information. - Employers can also add insight into any known pre-existing injuries, extended time away, and behaviour. Fraud Linked to Subjective Complaints - Lots of subjective complaints, excessive treatment, and many medical reports may be signs of fraud. - Fraud is often linked to lots of subjective complaints that are not possible to verify. - Multiple medical reports can signal a planned injury. - Doctors report on what claimants tell them, they are not able to corroborate the fact a claimant was in an accident. - Opportunistic insurance fraud occurs when the claimant makes an inflated claim, like exaggerating the severity of a back injury. Video Surveillance - Surveillance can be used to validate or invalidate a claim when fraud is suspected or when an injury has not resolved in a timeline manor. - Sophisticated fraudulent claims will be sensitive to the timing of surveillance. Adjusters must carefully plan strategies to use video. It may be more effective to order it immediately, while other times waiting until the claimant least expects it is recommended. - The law recognizes that surveillance is a legit tool to test claimant’s credibility in bodily injury claims. - Claimants must accept their rights to privacy must be balanced against a trial court’s need to examine the truth. - Adjusters must use good judgement to balance private interests of the insurer against the claimant’s rights. This can be done by ensuring that the o Surveillance activity is readily observable by any member of the public. o The person conducting surveillance has been retained to do it; and o The purpose for initiating the surveillance is proper. - After collecting all available info, the adjuster will assess the claim and meet with the claimant with properly detailed questions for the claimant and for medical experts to lean as much as possible about the injury - Claimant’s strengths and weaknesses must be examined. - Defence theories that apply to the case need to be examined and what strategies will make the defence stronger. 4 - Calculating Damages Reserving Process for Bodily Injury Claims - After meeting with the claimant, their attorney, and the insured the adjuster should have enough info to recommend an initial reserve. - Effects of the injury, exposure, and the length of time the file has been open are considered. - Insurers have forms that organize expenses and indemnity arising from injury claims, such as special damages and general damages. - Many insurers have automated these forms to allow for computers to calculate the interest costs once the rates are entered.

Resolving Bodily Injury Liability Claims - Do not admit liability to a claimant until all relevant facts have been uncovered and analyzed. - It can even be unwise to make a commitment on liability even when it has been decided to pay the claimant. - When you do not admit liability, insurers have more flexibility to argue the claim was not the result of the insured negligence if negotiations breakdown and the case goes to court. - If the decision is made to admit liability, care should be taken to resolve the issue of any contributory negligence on the part of the claimant. - Sometimes insurers find it reasonable and useful to provide advance payments when liability is clearly on the insured. - If it is determined there is no obligation to pay under the policy, the claimant and the incurred will be notified in writing. Release for Bodily Injury Claims - A release is the final document in the claims process, it signals closure and must be signed by the claimant in the presence of a witness who is independent of the claim. - If there is no one else able to sign the release the adjuster can sign. - Releases can be overturned if the settlement was grossly unrealistic or if the injured party needed legal advice but did not obtain it. - Adjusters cannot take advantage of a claimant’s susceptible position and must provide a proper explanation of the significance of the release. - A release signed by a minor is not binding, minors are protected under contract law because of their vulnerability as a youth. - Legislation around settlements that include minors typically require approval by a public trustee or a judge. - Injuries to a minor may be negotiated with the minor’s parents or guardian. Parents are required to sign an indemnity agreement promising the funds will be used for the benefit of the child. - Parents/Guardians also have to promise to indemnify the insurer if the minor makes a claim upon reaching legal age, although the parents may not have to means to make this payment.. - In AB, the law states that a public trustee looks after the interests of a minor whether the action is litigated or not. If the trustee is unable to reach a settlement the matter is put in front of the courts. - In ON judicial approval is required for settlements of all claims involving minors. Settlements are not binding unless approved by a judge. - Injury to a minor is often settled by a friendly action in a court proceeding with the following steps, o A statement of claim is issued on behalf of the minor. o Settlement approval must be given by the government officers responsible for protecting vulnerable claimants. o An appearance must be entered on behalf of the insured. o Lawyers for both the minor and the insured must appear before a judge. o The judge must be satisfied that the settlement is proper and produce judgement accordingly. o The settlement funds, excluding out of pocket expenses, are paid into court, and held in trust by the government until the minor reaches the age of majority. - In QB, infant settlements are concluded by means of the family council composed of parents and grandparents. Settlement funds are paid to the members of the family council.

- Strict liability applies to dangerous products, food and drink, medicine, and medicine related products. - Resa ipsa loquitor is useful for claimants when insufficient evidence exists to support the action. - The claimant may construct a prime facie case on circumstantial evidence that infers the insured was negligent. - The required standard of care for the insured is reasonable care. - The standard may be less stringent if the product is being used by a large commercial group who is familiar with the product, but also must be safe for those who are not familiar with it. - When the design of the product is the issue, adjuster should ask the following questions, o How useful is the product to the public? o How likely is it to cause harm? o Is a safer design available? o Was the product ‘s safety assessed by the manufacturer or an engineer? o How easily could the consumer have avoided being injured? o Was the consumer aware of the potential dangers? - Breach of statue does not give a consumer cause to sue, and compiling with a statue is not a defence. They can be useful to either party as an argument. - Courts may look to manufacturers peers to determine if standards are reasonable. - When manufacturing dangerous products, if reasonable effort to make a product safe is ignored they will be found to have not used reasonable care. - Warning labels may reduce liability imposed. Warnings and Labels - Manufactures have a duty to warn about products that may pose a danger / are defective. - Duty includes instructions on what to do if an injury occurs. - If a defect is discovered after a product is in the market, customers must be notified. Legislation for Product Safety - The Consumer Product Safety division of Health Canada establishes and enforces safety standards for products. - The Hazards Protection Act has certain regulations for products that are likely to be more dangerous to the health and safety of the public. - The Food and Drug Act regulates commodities such as cosmetics. - Non-food products are subject to the consumer packaging and labeling. - Foreseeable risks associated with products must be made known to consumers. - Adjusters should analyze original packaging. Adequate Warnings - It can be hard to prove a product was defective, it can be easier to prove it did not have adequate warnings. - Adequate warnings must contain enough info to allow customers to make an informed decision on if they want to accept the risks of using the product. General warnings are not adequate. - If the manufacturer has discharged it’s duty it can rely on the defence of voluntary assumption of risk. Then adjusters must determine if the product was being used as per instructions. - Lambert v. Lastoplex Chemicals – Claimant was injured when they used a product to seal their floor and the pilot light in his furnace ignited the product. The product contained general

warnings, but another product on the market specifically told ppl to extinguish pilot lights. It was determined the insured’s warning were insufficient. - If there is no link between the injury and inadequate/missing warnings the case will not be succeed. Dangerous Products - Products that are inherently dangerous (guns, fireworks, chemicals) will be held to a higher standard of care. - As the consumers risk increases so does the standard of care. - For products that are inherently dangerous the burden of proof shifts to the manufacturer to prove that they were not negligent. Quebec and Products Liability in Extracontractual Matters - In QB extracontractual liability can be assessed against the manufacturer, distributor, wholesaler, or retailer. - Courts have recognized manufacturing flaws, design defects, poor preservation of a thing or failure to warn for recovering damages. - QB also realizes inappropriate / insufficient labeling. 2 – Product Claim Investigation Assessing Coverage - Products liability is often covered under CGL policies. - Coverage may be on a claims-made basis rather than an occurrence basis. - Due to the nature of products a loss may be suffered months or years after the item was manufactured so claims made limits coverage to claims made/reported during the policy period. - Adjusters need to be familiar with trigger theories to establish when a claim was made, when it was reported, when the loss occurred, and what coverage the policy provides. Care, Custody, and Control - CGL policies exclude damages resulting from products in the insured’s care, custody, or control. - Products liability and completed operations provides coverage for bodily injury or property damage resulting from an occurrence or accident arising from a product or work performed. - Coverage only applies if the damage occurs away from the insured’s premises once control has been released. Pure Economic Loss - CGL policies do not cover pure economic loss, such as a decline in a third party’s cash because it was not invested wisely. - Most professional liability policies are designed to respond to economic losses. - There must be privity of contract with the tortfeasor for economic losses. - Suppose several ppl suffered injuries after eating contaminated canned food. The manufacturer must issue warnings and arrange for the removal of the product from retailer. The expense to recall would typically be excluded. It can be added via endorsement, the Sistership Clause. Gathering Information and Applying the Law

- The description of the claim and how the claimant brings it will to some extent dictate what info the adjuster has to gather. - If an adjuster denies a claim, they must have sufficient evidence. The courts will make its decision based on the weight of the evidence presented, credibility of the third party, and info based on businesses of a similar nature. - If the claim is a breach of warranty the claimant only must show that there was a breach, not negligence. - During the investigation of the defect, adjusters should learn about the relationship of the claimant to the insured and if damages were the result of breach of contract. - When a retailer recommends one product over another the item is subject to an implied warranty that is reasonably fit for the purpose the buyer intends to use it for. - It’s important to know if the customer asked for a specific product or if it was recommended. Investigation of the Product - Appropriate technical experts should examine allegedly defective products. - If the product is not available, it must be described specifically, and a similar product obtained. - Copies of all printed material about the product, advertising, the manufacturing process, and packaging need to be captured in the adjuster’s report. - Are there any hazards with the product, was the insured aware, was it misused? - Some products have certain, easily misunderstood characteristics. Canned salmon may contain crystals that resemble broken glass. Others Responsible for the Defect - When the insured is a wholesaler or distributor you need to describe how the product was received at the insured premises and how it was sent out - The names of all parties involved in the manufacturing and distribution of the product need to be incorporated into the adjuster’s report. Joint Tortfeasors - When other parties have contributed to the accident they may. Be apportioned their share of damages as joint tortfeasors. - A product may have been examined after it left the manufacturer and the party who completed the inspection may have been partly responsible for causing the damages. - When an intervening activity creates a defect in a product, it can affect the claimants claim against the manufacturer. - The insured may have recourse against another party or be held jointly responsible for the damages. Learned Intermediary Rule - The learned intermediary rule originated in pharmaceutical litigation and courts have recognized it in other contexts. - It is the application of the principle of intermediate examination and intervening cause. - A consumer relies on a professional to exercise skill in dispensing a product, it is not up to the consumer to understand the technical application of the product. - If manufacturers do not inform the learned intermediary about the risks, they cannot inform the ultimate consumer about them - The rule applies when the product is technical and intended to be used only under expert supervision.

- Ex: a surgeon who is inserting or attaching a product to a customer. It is up to the manufacturer to make the surgeon aware of any special risks. The surgeon can then assess whether the patient is a candidate for the product and passes the info on to the patient. - A learned intermediary may require less info on a product than the public would. - Manufacturers can lean on this rule when competent professionals should know the risks. Loss Mitigation - Claimants are required to do all that is possible to mitigate their risk. - A claimant must accept any reasonable treatment that would improve their condition. - Deductions would be made to reflect the improved state if the claimant sought treatment. Contributory Negligence - When a consumer knows of a defect in the product yet continues to use it, or does not take reasonable care in using it, he or she may have contributed to the cause of the injury. - Legislation permits damages to be portioned between the claimant and the defendant when contributory negligence is a factor. - Abnormal use is also a factor. If the defendant can prove the product was used in a totally unpredicted way, liability may be absolved. Sensitivity of User - A product may not have a negative effect on most of the population, but some ppl may react to it because of an allergy. - Sensitivities and allergies do not mean the product was defective. - When many people are affected and the results and serious, the manufacturer may have a duty to warn customers. Voluntary Assumption of Risk ( volenti or non fit injuria) - Defence relies on the theory that those who waive their rights are not protected by law. - When a consumer has provided all info that would lead a reasonable person to conclude the consumer assumed the risks of the product, then volenti maxim could be applied. Obvious Danger - When obvious damage exists, the manufacturer does not have a duty to warn customers. - The law assumes that when the consumer uses a product and it leads to foreseeable results, the consumer must assume those risks. Defences Against Products Liability Claims in Quebec - The civil code provides 3 defences.1) the state of knowledge regarding the product in existence at the time 2) the fact that a claimant could have known afoot the defect and should have known its risks 3) the fact that the manufacturer made available all the proper info about the shortcomings of the product.

3 – Assessing Liability in Tort for Professional Liability Breach of Contract - Liability of the professional arose from the law of contract. - Responsibility rests with the professional to perform the duties owed to his or her client as described in the contract. - Failure to deliver is a breach of contractual obligation. - Suits were limited to ppl having privity of contract. High Standard of Care - Professionals have an increased responsibility to perform with skill and care over the average person. They possess superior knowledge and skill. - Professionals cannot use the ordinary test of negligence (care exercised by a reasonable person) - Doctors who specialize and subject to a higher standard of care in their field. - Professionals will not be held liable for an error in judgement. - If the professional’s recommendation was obviously and plainly wrong, they may be found negligent. Professional Liability Policies - Professional liability claims tend to relate to purely economic losses, not property or bodily injury. - E&O coverage generally provides coverage for economic losses that arise from negligently rendering or failing to render services. - Special policy names have been developed for certain groups of professionals and are unique to that group. - There are a few standard policy forms available, such as the druggist’s liability coverage rider and the physicians’, surgeons’, and dentists’ professional liability policy. - Insurance is often provided through the association or society that regulates the profession and the professional belongs to. - The professional will also require other types of liability coverage such as CGL. - Problems can arise when determining which policy should respond and they need to be carefully reviewed to determine which contributes to 1) defence costs 2) indemnity payments. - When coverage is provided on a claims-made basis you need to determine the date of the error, the date the insured had knowledge of the error, the date the claim was made, the date it was reported to the insurer. - Failure to report a claim can jeopardize coverage and prejudice the insurer. Basis for Handling Professional Liability Claims - Specialist adjusters usually handle professional liability claims and they should have many years of experience in general claims adjusting. - A professional’s reputation can be ruined if an investigation leads to an inappropriate claim stlm - Professional liability claims usually involve a claimant making a claim of some wrongdoing, when large amounts of money are lost or a serious injury is suffered a lawsuit is likely to occur - If a professional decides to pay a small amount personally, the insurer must grant permission. - There is a balance that needs to be maintained between the insured’s reputation and the insurer’s desire to close a claim. Adjusters should recommend a settlement w/o admitting liability.

- There is also a professional exposure to the adjuster handling the claim as the insured’s livelihood may depend on proper handling. Improper investigation can result in a legal suit against the adjuster, insurer, or both. Lawyers’ E&O Claims - Lawyers are expected to operate with the standard or care of any competent lawyer. - They will not be considered negligent for an error in judgement because there is no guarantee that a legal opinion / interpretation will produce a positive result. - A duty is owned to clients and others as well. - A lawyer may give negligent advice to someone they do not have a contract with, if they know the advice will be relied upon there may be liability imposed in tort for damages. Medical Malpractice Claims - Physicians have a large fund in the Canadian Medical Protective Association to ensure defenses in medical malpractice suits are skillfully managed. - Suits are vigorously defended with the goal of preserving the physician’s reputation. - Proof of causation has been held to a very high standard. - Patients who wish to make a claim go to their jurisdiction’s college of physicians and surgeons which was put in place by statutory legislation in an attempt of detect incompetent physicians. - Adjusters need to develop contacts among doctors who will consult on claims, which can be hard because they know they may need to testify and provide the adjuster with info so that they can evaluate the claim and a suitable plan of investigation. - Hospital records are an important source of info, proper consents must be obtained for access. - Doctor’s experience and education must be described. - When a doctor preforms surgery, the patient must sign a consent form unless it is lifesaving. - Without consent a doctor has committed the tort of battery - There is exposure if a doctor does not properly explain the potential risks to a patient. - The burden of proof rests with the patient to prove the doctor was negligent. - It is rare for a doctor to be found in breach of medical standard in Canada. Dental Malpractice Claims - Dental claims are investigated in much the same way as physicians including consent standards. - A dentist who operates without consent can be found liable for battery. Druggists’ E&O Claims - Claims involve dispensing drugs. - Any drug dispensed should be analyzed and correctly identified. - Adjusters need to determine whether a druggist recommended a drug and what caused the injury (a side-effect, a substituted but medically accepted drug, or the wrong drug) - Once cause is established, they will look to see if instructions were clear and if the claimant ignored the instructions. - Responsibility may rest with the druggist, the manufacturer, the doctor, or the claimant. Liability may be shared. Architects’ and Engineers’ E&O Claims - Architects and engineers are closely associated, and adjusters must distinguish who is responsible for functions, which may not be clear. - A potential for joint tortfeasors exists.

- The contract of employment will need to be reviewed to determine what services of the professional were required. The amount of involvement may affect the degree of liability. - The forms of liability are limitless, some examples are inadequate site inspection, negligent proposals, defective designs, and improper direction or advice. - An independent architect or engineer will be hired to establish the cause of the mishap and provide export testimony if necessary. - Historically design professionals only owed a duty of care when privity of contract existed, however the duty of care has been extended. Now the owner who contracted the work and the subsequent purchaser can sue as well. Directors’ and Officers’ E&O Claims - D&Os can be held liable if they do not perform competently, diligently, prudently, and honestly. - They must perform in good faith and the best interests of the company must be upheld and balanced against the competing interests of the shareholders. - Adjusters must ask if a prudent person in similar circumstances with comparable knowledge would act in the same way. - Adjusters will need to review the charter and by-laws of the company because they will describe the mandate and limitations within the director must operate. - Minutes of the board meetings and annual reports should also be reviewed. - Expert accountants and lawyers are often hired to examine highly complex financial manoeuvres and determine their legality. Policy Coverage Considerations - Despite policies often being claims-made, it is not unusual to have wording stating prior acts are excluded. - Policies normally have 2 insuring agreements. One that will reimburse the director / officer and one that will reimburse the corporation. - Legislation can impose obligations on the corporation to reimburse or indemnify D&Os under certain circumstances. Miscellaneous Professional Liability - Many other groups require professional liability – beauticians, undertakers, real estate agents, insurance adjusters and brokers. - Any profession that involves skilled and specialized work - Investigation will be similar in all these cases but modified to suit the speciality involved. Loss Control - Adjusters can play a role in loss control. - When trends are noticed, this information should be transmitted to underwriters and/or risk managers if they are in control of the insured’s practices.

Chapter 4 – Automobile Injury Claims 1 – Automobile Third-Party Bodily Injury Claims Accident Benefits - The standard auto policy across all jurisdictions (except NFLD) provides accident benefits. - Accident benefits are first-party coverage for medical expenses, wage loss, rehab expenses, death and funeral benefits, and other personal-care expenses because of injury or death. - Covers the registered owner (as driver or passenger), passengers, cyclists, and pedestrians. Anyone injured as a result of the use, operation, and ownership of the automobile. - Benefits vary between jurisdictions. - This coverage makes funds more available. - An injured party who is not at fault can still sue the negligent party unless a no-fault compensation scheme for bodily injury is in place. - If an injured party is permitted to sue, the amount they receive from accident benefits will be deductible from the damages awarded in the tort action. - Accident benefits are secondary to other coverages such as accident and sickness insurance, government health plans, and long-term disability plans. Provincial and Territorial Automobile Injury Regimes/Coverage - Scan through pages 4-4 to 4-8 for more details on the below chart. BC AB, Nunavut, NWT, Yukon SK MB ON QB NS, NB, PEI NFLD Legal Type Tort Tort No- fault/tort Operation al vehicle damage tort No-fault No-fault No-fault No-fault (property damage only) No-fault Who Provides Govt Private Govt Govt Private Private & Govt Private Private Minimu m Coverag e Required Third-party liability Accident benefits Uninsured auto / underinsure d motorist protection Third- party liability Accident benefits Uninsure d auto Third- party liability Accident benefits All perils Third-party liability Accident benefits All perils Uninsured auto / underinsure d motorist protection Third-party liability Accident benefits Direct compensatio n property damage Uninsured auto Third-party liability Accident benefits Direct compensatio n agreement Third-party liability Accident benefits Direct compensatio n property damage Uninsured auto Third-party liability Uninsured auto Direct compensatio n property damage Out-of-Province or Out-of-Territory Claims

- When these situations occur, adjusters must determine what arrangements have been provided for claim settlement. - Reciprocal agreements are in place between some jurisdictions. Lump Sum Payments Under Accident Benefits - When lump sum payments are issued instead of weekly benefits the insurer can close their file - Commuted Values – the amount it would take in today’s dollars to pay off an accrued benefit or obligation that is due in the future. - Commuted values for the sums paid now to cover future payments are not necessarily calculated in lump sum payments. - Totally accurate projection cannot be guaranteed. 2 – Injury Claims Process Claims Process Medical Payments - Adjusters may need to review original medical and treatment invoices. - Incurred expenses must be reasonable, necessary, and related to the accident. - In ON rehabilitation limits are significant because of costs. Rehab is a tool that improves the odds of a claimant recovering and returning to work. - The same goes in BC, but costs are billed directly to ICBC so the injured party doesn’t have to carry the costs of rehab. Rehabilitation - Requires a plan of action that involves assessments, goal setting, planning, training, placement, and follow-up. - Specific training and special equipment may be required. - Several weeks off work and general inactively is not recommended for those that have soft tissue injuries. - When a bodily injury reserve must be set up under the third-party liability limits of an auto policy, the investigation must provide enough info for the adjuster to recommend a reserve. - The injured party’s personal circumstances and info surrounding the effects of the injury will contribute to the reserve recommendation. Wage Loss (weekly indemnity or income payments) - Must confirm the claimant was employed or meets the definition of employed. - Salary and wage details can be confirmed by the employer. - Note any disability plans the insured is entitled to collect from. - Criteria for collecting lost wages from accident benefit coverage varies across the jurisdictions, - The general test states that the insured must be unable to perform the usual duties of their occupation. After a set period it changes to unable to do any occupation for which the insured is suited - If you run into claimants who have longer disability periods than others with comparable injuries an independent medical examination may be required - In extreme cases, surveillance may be required.

Conflicting Reports - Adjusters may be faced with conflicting opinions from providers who do not subscribe to a single approach in the diagnosis of a particular injury. - Understanding the medical issue will allow the adjuster to evaluate whether enough evidence has been presented to decide on the claim. Ex pg 4-11 Death of the Insured - If an insured dies because of their injuries a death benefit is paid. - The amount depends on the status of the insured in their household. - Proof is required, a death certificate and documents tying the death to the accident. - Funeral costs will be reimbursed up to the policy limit. Relevant Medical Information - Adjusters must know whether medical info is relevant to a particular medical evaluation. - In many jurisdictions the insurer has a statutory right to see any medical info relating to the insured’s file. - Typical treatment plans for soft tissue injuries or whiplash included cervical collars, traction, and extended bed rest. Research has demonstrated that these can cause delay and contribute to pain. Ex 4-12 Collateral Benefits - A person may be eligible to receive compensation under private insurance or government plans other than their auto policy. These are known as collateral benefits. - Collateral benefits are deducted from auto settlements. - Many policies contain a reimbursement clause mandating claimants to repay duplicate payments. - When medical plans have paid for medical treatments, the jurisdiction can subrogate and collect any disbursements that were made. - In certain jurisdictions, legislation permits certain deductions. In ON insurers may deduct disability pension benefits under the CPP from income replacement benefits for auto accidents - In certain jurisdiction sand for certain benefits, claimants are entitled to receive benefits without deductions. - Auto claims can be expenses, esp when a tort is involved. EX: 4-14. Automobile Accident Subrogation - Always examine the possibility of subrogation when a serious accident occurs. - Often experts are hired to produce and preserve evidence. - Sometimes experts are hired to defend having to pay out a large or as large of a loss. - Adjusters must document any situation that could affect a decision on liability. A public entity or someone else could be responsible for the condition of the roadway and share some liability. - The right of a third party to claim for injuries over and above the statutory accident benefits may be limited or reduced by legislation. Releases for Injury Claims - Adjusters should warn claimants to consider legal, financial, and medical advice before signing a release. - A release gives up your right to pursue a future claim or legal action.

- Accident benefit payments will not be affected if a claimant does not sign a release. - ON has certain procedures to make a lump sum settlement final. Uninsured Motorist Claims - Auto insurance in mandatory in Canada, but some ppl drive without it and cause accidents - Uninsured motorist coverage allows the insured’s own policy to respond. - Physical damage to the vehicle is only recovered if the other party is identified. - Damage would be paid for out of collision coverage subject to their deductible and will not affect the insured’s rating. - When the uninsured motorist is known, the adjuster must verify there is no insurance. Coverage is limited to the min third-party liability policy requirements in each jurisdiction. Non-owned Automobile Policy - Adjusters must be aware of any non-owned auto policies that may exist. - It is an endorsement to the CGL policy. - The insuring agreement covers the liability imposed by law upon and insured arising from the use or operation of any auto that is not owned/licensed in the name of the insured in the course of the insured’s business. - Coverage is triggered when the insured’s personal policy limits are exhausted / insufficient to pay the loss. Protection Against Fraud - Insurance fraud is a serious criminal offence and can land you 10 years in prison. - Some insurance acts include specific consequences for certain types of fraud. - In ON making a false or misleading statement to obtain a benefit under the contract of insurance, or to willfully fail to inform an insurer of a material change within 14 days carries a max fine of $100k for the first offence and $200k for any subsequent conviction. Chapter 5 – Negotiation and Mediation 1 – Negotiating Skills in Claims Settlement Negotiating Claims Settlements - Negotiation styles can be broken down into 2 types. 1. Rights-based negotiations – results in one party losing and the other one winning. It is adversarial, and traditionally used in litigation. 2. Interest-based negotiations – stresses cooperation between parties. Each party is expected to make a concession to the other in an effort to acknowledge the needs of both parties. It is less disruptive and associated with mediation. - Adjusters use both types, use superior people skills, and preserve a healthy client relationship. - In adversarial rights-based negotiations adjusters can expect to encounter diversionary tactics, manipulation, blaming, intimidation, and coercion. - Evaluation a loss under a policy tends to have more interest-based negotiations. - Adjusting third-party claims are a bit more complex because the adjuster also must uphold the insured’s interests.

- If the negotiation involves subrogation, it is not in the best interest of the insurer to use hardball tactics that could result in hardship for the at-fault party that bankruptcy ensues. Skills of a Negotiator - Poor communication is often the cause of disputes. - Skilled negotiators tend to be, o Composed o Courteous o Analytical; and o Serious - The goal is to create a comfortable atmosphere for the participants. - Be a good listener, demonstrate respect, be attentive, and summarize/repeat main ideas. Use Conciliatory Language - Positions should be presented in a conciliatory tone using words that do not offend. - If a request cannot be accommodated, respectfully explain why. - Stive to end all negotiating sessions on a positive note, whether the claim has been fully resolved. Body Language Cues - Good communicators understand the important of non-verbal cues. - Interpret pitch, attitude, and body language as well as what is being said. - Non-verbal cues like eye contact, posture, facial expressions, and gestures influence interpretation. - Body language can be used to assess what is being said, as well as what is not being said. Attitude - Being polite can neutralize what may otherwise be a negative environment. - Avoid rude behaviour, o Talking when someone is making introductions or explaining a point. o Tapping an object when someone is talking. o Eye-rolling when someone is talking. o Pointing at someone (can be aggressive and therefore rude) - Address rude behaviour as soon as it occurs, ask the person to explain why they are reacting that way or walk away from the negotiation. Resist Making Accusations - Negotiations can be emotional, resist making accusations or using abusive language. - Attempting to prove statements right or wrong is usually unproductive. Reacting Defensively - Reacting defensively affects the relationship between negotiating parties. - Refocus on other issues instead of making accusations. - You must not be naïve, but do not judge. - In situations where misrepresentation is blatant and obvious, direct confrontation may be warranted.

Effect of Rising Tensions - When tensions rise, parties tend to stop listening. - Use soothing, neutral words, to minimize tension and improve the environment for effective communication. Delivering Bad News - It is not effective to offer lengthy, self-justifying explanations. - It may be more effective to show the bad news rather than verbalize it. - When a claim is valued considerably lower than what the claimant wants, show them the calculation paired with a factual explanation of how the settlement was reached. - When bad news is delivered, always be available to discuss it. Adapting of Different Personalities - Be sensitive to different personality types. - Some ppl blame others because they are unable to take responsibility for their actions and they are not able to see the effects of blaming someone else. - Cooperation and honesty are favoured over suspicion and ill will. Interpreting Action of File - When someone calls to discuss a case, it could be because they want to resolve it. - Is the message long or short, are they speaking loudly, quickly, with pauses, or hesitantly? - Slow speech or a long message can indicate settlement has become more attractive. Emotions in Negotiations - Anger is a strong emotion that can arise during negotiations. - When people are angry they tend not to hear or understand what is being said. - Effective listening requires identifying anger (Flushed face, agitated movements, crying, etc) - Without stifling the anger, ask more and ask for clarification as to why they feel that way - Even if another party is angry, you can still build rapport by continuing to be open, interested, and friendly. The other party may just need a release and then they will return to facts. - Very expressive people tend to get angry quickly, again they may need to let off steam. - Empathic adjusters express regret for the claimant, “I am sorry that you are going through ….” - If emotions are leading to aggressive behaviour, ask the claimant to fully formulate their concerns. Stopping to think may allow them to cool off. 2 – Framework of the Negotiating Plan Separate the Issues - To organize a claim and set the stage for an agreement to occur step-by-step, separate the issues in a claim. - Some issues may be easily agreed upon and quickly settled. - Some claims may benefit from an all-inclusive offer. - When calculating a settlement figure the adjuster should understand the claim and use the knowledge and experience, they have gained throughout their careers. - Knowledge of how the law will apply and understanding medicals is necessary. - Questions like these can be asked, o Is the claimant’s injury expected to heal without complications?

o Does the thin-skull rule apply and how will affect the claim? o What effect has the injury had on the claimant’s life? Re-evaluates Case Upon New Information - Whenever you receive new, substantiated info or evidence you must be prepared to re-evaluate the case to incorporate the info into decisions made on the file. - If disclosed during negotiations you must be open-minded, flexible, and able to think quick. - Adjusters often make the first offer to settle, the danger in this is there is no reactive devaluation. The opposing side knows that they will get at least what is offered and will assume that is the lower end of the settlement range. - Alternatively, if the claimant has unrealistic expectations the first offer is a way to bring them down to a reasonable range and back to reality. Making Concessions - It is human nature to place less value on concessions made too quickly during negotiations. - Timing is important, any concession should be hard won and worthwhile. - In mediation, mediators can introduce concessions. This can be relevant if there is not a high level of trust between the parties. - The neutrality of the mediator allows them to suggest ideas without them being diminished. Alternative Dispute Resolution Models - When negotiations breakdown or the claim is denied, the parties may turn to mediation, mini- trails, arbitration, appraisal, or litigation. - Litigation is expensive so using a less formal dispute resolution is preferred by insurers. - Using a resolution method that is based on cooperation decreases animosity between parties. - In certain centres of ON defence counsel must participate in mandatory mediation as a required step in all litigated cases. The party must attend mediation and “may” bring a lawyer. Comparing Litigation to Mediation Processes - Filing a lawsuit often escalates conflict destroying any reasonable relationship that may have still existed. - Lawyers prepare to advocate on behalf of their clients, who both believe they are right, and the wrongdoer will be held accountable. - Litigation is a formal, painstaking system designed to find truth based on carefully admitted and assessed evidence. Alternative to Litigation - An alternative is mediation. - Collaboration and cooperation are expected. It manages conflict compassionately. - Entering mediation does not guarantee a settlement, but if one is reached, it is binding. Confidentiality in Mediation - Confidentiality is a mainstay of mediation from the moment the mediator is retained. - Everyone must accept that all materials and context of the mediation is confidential. - Litigation however is public record.

Each Party’s Interest Examined - Mediation avoids the formal rules of litigation. - It fosters an interest-based approached designed to resolve problems without assessing blame and assigning fault. - Everyone participates and looks for solutions that are acceptable to all. - Alternative dispute resolutions offer flexibility. - Litigation is held to legal principles. 3 – Mediation Theory Mediation Process - With the help of a mediator, each party is coaxed to analyze the case objectively. - Discussions may go beyond the legal issues of a case, be ready to explore everything that is related to the claim. - Each party is expected to actively participate towards a resolution. When to Consider Mediation - When negotiations have stalled, parties may agree to mediation to help overcome the lack of agreement. - In insurance disputes, mediation can be used to determine how much damages are worth, what each party should contribute to a settlement, coverage issues, loss transfers, etc. - Mediators start prepping as soon as the mediation has been booked. Preparing for Mediation - Mediation success depends on adequate preparation. - Participants must study the file and develop strategies to resolve the dispute. - You won’t be able to anticipate everything, but if you know the file well you will be better prepared to deal with unexpected twists and turns. Mediator’s Role - A neutral third party who is there to assist parties with negotiating fairly a respectfully. - The mediator facilitates the mediation process. - Mediators are skilled in negotiation, communication, interviewing, and counselling. - They are empathetic and can see people’s points of view. - They ask questions to ensure the disclosure of all necessary information and listen to summarize the issues accurately. - Choosing a mediator depends on the circumstances of the claim. Mediator as a Coach - Mediators control (coach) the mediation. They intervene as required to move the process forward when appropriate. - They can help prepare a client who was new and inexperienced to the mediation process. Exploring Possibilities

- Help parties see the real areas of dispute and explore solutions. - Mediators must remain neutral and cannot impose their views or legal opinion, unless both sides request that they do. - A mediator can decline providing their view. Ensuring Equal Representation for the Parties - Mediators try to ensure that each sider understands the other thoroughly. - If there is a power imbalance the mediator should ensure both sides state their issues fully and fairly. - Mediators can help defuse highly charged emotional encounters. - Mediators assess how personalities will interact. Claims Representative’s Role in Mediation - Adjusters can act as the claimant’s representative. - During the opening statements an attempt to find common ground should be made. - Non-confrontational communication techniques need to be used. - Adjusters should face the claimant, not the mediator. The mediator is not a go-between person. - Adjuster should attend with enough authority to settle, otherwise a senior claims person should be on-call ready to increase if necessary. - Adjusters also need to be prepared to deal with new information. Lawyer’s Role in Mediation - Usually represent the parties in a claims dispute - They help select a mediator and set up the meeting. - They prepare their clients. - Some lawyers who are comfortable with the traditional litigation method may not be as comfortable with mediation. - If an agreement is made, counsel will draft the minutes of the settlement to lay out the expectations of the parties. They are the written out agreed upon terms of the settlement. Each party receives a copy. Preparing Claimant’s for Mediation - Client’s need to be briefed on what to expect. - Claimants are expected to speak to establish rapport with everyone involved. - Insurers will evaluate the claimant on if they are a good witness or not. - If the claimant is represented their attorney should have prepped them on reasonable damages and the goals of mediation. Selecting the Mediation Team - Selecting the appropriate mediation team can be fundamental to the success. - Claims examiners can substitute for the loss adjuster. - Mediation counsel can substitute for litigation counsel. - Adjusters must have authority, or it is a waste of everyone’s time. Mediation Agreements - After the mediation is booked, the mediator sends out a mediation agreement. - It sets out all the terms and conditions (who pays costs, what happens if it is cancelled or runs into overtime and confidentiality).

- If the matter does not settle and moves to litigation, anything discussed in mediation is confidential. - Agreements can be crafted to suit specific situations. Cost of Mediation - In commercial settings, the parties entering mediation share the costs. Which ensures the neutrality of the mediator. - In insurance matters the insurer agrees at the outset to pay. - Some insurers ask the claimant to share the costs. This way the claimant has a stake in seriously considering a settlement. Mediation Memos - When mediation is scheduled, attorney’s prepare mediation memos. - The most persuasive memos are written in a narrative form, presenting issues in a way that engages the reader and analyzes the strengths of each position. - The memos deal with the arguments that they anticipate receiving from their opponents. - Well-developed memos provide a road map to resolution for the mediator. - Counsel and client should review and discuss the memo before it is sent. Previous Offer or Negotiations - Previous offers to settle should be disclosed in the mediation summary. - When experienced mediators read the memos, they will understand why the matter has not settled. - If negotiations without any formal offers have occurred, counsel should communicate any changes in their opinions before the mediation is arranged. - If new information becomes available, an entirely different settlement position can be taken. Opening Statements - The mediator introduces all the parties and describes the rules and goals of the mediation. - The mediator explains the dynamic or the negotiations. Find Common Ground - The opening statements introduce the insurer’s position and is an opportunity for the claims rep to acknowledge the other party’s injury or suffering. - Saying something simple to ease tensions can be beneficial. - After common ground is established, the adjuster can go over the reasons that the session is taking place. Objective Examination of the Case - After opening statements, the claim rep can address the points made by the claimant and answer any questions that were directly raised. - People entering mediation usually have unrealistic expectations about the value and rightness of their claim. - To encourage realistic expectations, unsubstantiated claims should be probed, underlying assumptions questioned, and evidence examined to show any weakness. - If info is lacking, then mediation may need to be delayed / cancelled. Presenting Evidence in Mediation

- Complicated issues of medical evidence and diagnosis play a role in insurance claims. - Keeping the memo brief and concise to helps the mediator read and understand it, but it must include crucial points and supporting evidence. - Highlight key medical points in the memo and state where to find the medical evidence. Disclosure of Surveillance Evidence - Surveillance is a sensitive issue. - If it’s good surveillance it provides irrefutable evidence - If the insurer intends to use it, it should be disclosed in the mediation summary and should be sent to counsel beforehand to review esp. in cases where DC has expert witnesses. Expert Witnesses in Mediation - If an expert is asked to attend, they carry more weight is the opposing side is allowed to question them directly. Refusal to ask questions creates suspicion. - Experts typically speak in the opening statements, but they can be asked to stay for the entirety. - In complex cases, experts from both sides may be asked to meet to narrow or eliminate difference between the positions. Caucusing - Mediators usually separate the parties after the opening statements. - The mediator speaks to each party confidentially to identify what flexibility exists in settlement positions. - The mediator shuttles between the parties, separate side meetings, known as caucusing. - It provides more control to the mediator and greater comfort to the participants. - Any combination between the parties attending is possible. Approaches to Confidentiality in Caucusing - There are two approach’s that are commonly used, 1. Everything discussed in a caucus can be revealed to the group, unless the parties specifically request that is remain confidential. 2. Everything revealed in a caucus is confidential unless it is specifically agreed that it can be shared with the group. - The second approach is used when mediation is mandatory, close to trial, and trail strategy is being contemplated. - The mediator can discuss specific trial strategy and may urge counsel to reveal certain things to the opposing party to facilitate resolution. - The promise of confidentiality in caucusing encourages full information disclosure. - After a brainstorming session, the parties should reflect on what options have been raised and consider which would work. - Each party must assess the current situation and what their chances would be in court. - Even winning comes with a cost, legal fees are not fully recoverable by the winner. - Personalities of the parties affect the mediation process. - The buffer of caucusing allows sensitive info to be put before the other party privately. Finalizing a Mediation - If the parties reach a resolution, the lawyers draw up the settlement agreement.

- The agreement includes a release and a description of how things will play out; when the claim will be paid, time limits, who does what, and any further undertakings. - Diminishes the risks associated with unresolved conflict. - The minutes can impose confidentiality, avoiding negative publicity or creating legal precedent. - If a resolution is not reaches, the parties may choose neutral evaluation, arbitration, or litigation. - If neutral evaluation is selected, the mediator may be asked to modify their role and act as the neutral evaluator. Some mediators may decline. Obstacles to Settlement in Mediation - The reasonable settlement approximates what a claimant would be awarded at trial less any reasonable amount negotiated to account for the claimant’s saving of time, trouble, and expense. - If a claimant feels they have a good case and would secure a large settlement ( jackpot syndrome) it can derail mediation - When both parties feel they would be better off going to court the mediation environment becomes adversarial and positive outcomes are unlikely. - If parties enter mediation after litigation has begun, many fences need to be mended. - Defending counsel has likely denied all allegations of wrongdoing. - The situation can be further complicated is litigation counsel asked invasive questions during discovery or have surveillance that leave the claimant feeling threatened. Timing - A recognized failing of mandatory mediation is the timing. - Often it is too soon and there may not be enough info to properly evaluate and assess damages. - Counsel must be told at the onset that each party must receive materials submitted for mediation within a reasonable time before the mediation date. - Mediation can be cancelled if info is not received or received at the last minute. - The mediation agreement should have a clause stating the party responsible for the cancellation will bear the costs. - Each party will act in their own interest. Neither should be naïve and think the other will accept less than that they think they are entitled to. - When negotiations stall, the mediator may use the opportunity to review the issues and probe for misunderstandings. - When mediation seems close to closure, sometimes one party will suddenly make a new demand. Try not to make the accusation of bad faith, external issues may have caused the setback (adjuster’s supervisor giving difficult-to-follow parameters). Chapter 6 – Investigative Issues in Property Losses 1 – Relationship Management in First-Party Losses - One the of the adjuster priorities will be ensuring the relationship with the insured is managed appropriately.

Managing Emotions - Insureds may feel vulnerable or traumatized and display strange or unpredictable behavior. - It would be inappropriate to provide claims advice based on the insured preliminary comments. - Displaying a caring attitude with a professional relationship can prove invaluable. - After an initial outburst, help the claimant cope and claim down by giving them something concrete to do. - This can include sorting items or preventing further damage to the property. This can be therapeutic and is also a requirement under the policy. - Provide moral support without judgement. In Labellel v. Guardian Insurance Co. of Canada punitive damages were awarded against the insurer because the adjuster was found to be insulting and arrogant towards the insured. - Customer service standards have changed, conduct that was once acceptable may not be today. Other Issues for the Property Loss Adjuster - Other unforeseen issues that arise when investigation a claim can include, o Conflict of interest o Public adjusters o Possible subrogation or suits against the insured o Multiple types of insurance o Unique situations o Northing appearance objectively. Conflict of Interest - Must be diligent to avoid conflicts of interest. - Two separate claimants may be represented by the same adjusting firm. This will require special treatment or assignment may have to be declined. - Adjusters must decline any offer of free services or free merchandise. - Loss adjusters with a stake in the business cannot recommend the business to the claimant. - Adjusters cannot profit from a loss situation outside of their fee or salary. Public adjusters - Despite an adjuster’s best efforts, the claimant may choose to employ a public adjuster. - PA’s solicit insureds for the chance to represent their interests when a loss of a certain magnitude occurs. - PA’s are not lawyers and the adjuster is still entitled to communicate with the insured. However, if the insured asks them not to, the request should be respected. - PA’s would prepare an agency agreement for the insured to sign which details the scope that the PA is able to act on for the insured. - PA’s will generally change a percentage fee based on the amount of the claim (5-8%). The US has capped the % at 12.5% - Adjusters can ask the PA if they are licensed and request a copy of the agreement to understand the PAs involvement. - This is important if the policy has an endorsement that extends coverage for reasonable fees for consultants, etc. The adjuster should notify the insured of any policy limitations relating to consulting fees if this is an issue. - If the insured directs the insurer to add the PA as a payee to settlement funds, the insurer must do so.

- Never direct anger to the insured for hiring a PA. It is their right to hire one. Possible subrogation or suits against the insured - Be immediately sensitive to any possibility of subrogation against a wrongdoer. - It influences the depth of investigation. - Experts will likely be required to determine how the loss occurred. Multiple types of insurance - An insured may have many types of insurance in effect. - A direct-damage claim may activate a BI claim. - BI claims may require a forensic accountant. Unique situations - Adjusters may not immediately know how to approach an unusual or novel situation. - Using some imagination will improve the results of the investigation, look outside you comfort zone. - Obtaining info is critical, look for alternative ways to verbalize request for info. - The way you phrase questions may sort out responses that sound like mixed messages. - Attempt to get the most accurate version of the event for the record. Noting appearance objectively - Adjusters should note the general appearance of the insured, or anyone being interviewed. - After recording the info, confirm the details with the insured about their appearance, if the appearance is significant to the claim (soot on clothing or smell of gas on a fire claim). - Alter and record any info that could support evidence relating to what the insured was doing at the time of the loss. - Each claim and insured situation will be unique. Statements - When taking statement, it is your job to make the person feel at ease and document the necessary background info. - You should have considered what info was lacking in the file. - The specific questions that are asked will depend on the circumstances of the case. Policy Compliance Questions - Ask questions that establish insurable interest and other questions about the policy contract and compliance with its terms. - Including questions about prior losses. Issues may be raised concerning non-disclosure if answers do not support the underwriting file. - Questions will vary depending on the claim. Listening - When starting an interview, ask simple, direct, non-threatening questions. - Follow-up with open ended questions - Listening is important and allow the person as much time and encouragement as needed. - Show that you are listening and ask questions to clarify ambiguous info. - A checklist can be helpful, but it does not substitute natural curiosity to dig for facts.

- Be prepared, flexible, and think quickly. - Stiff, formal, question and answer situations will not build rapport to encourage the exchange of inf. - Most claims require a statement in writing form the insured. - When taken soon after the loss they provide a valuable and permanent record of a recollection at a. time when the incident is still fresh. Multiple Statements - It may be necessary to take multiple statements from an insured. - An alibi statement may confirm what the insured was doing during a certain timeframe. - They can clarify an inconsistency in the information uncovered. - Statements can also damage the credibility of the statement giver if there are inconsistencies. - Depending on the situation it may not be ideal to take a statement at the time of loss, they can be given later, and sent to the person for review, expansions, and signature. - There are policy conditions that oblige an insured to corporate and provide info. They may refuse to sign a statement, but they must provide info. - An interviewer could contaminate a statement, by saying or doing something that influences the person giving the statement. - Interviewers should guide the conversation and take care not to distort the story. - Many policies provide insurers with the right to conduct an examination of the insured under oath which would be recorded by a court reporter. 2 – Good Faith Claims Dealing - The law requires that parties to an insurance contract must act with utmost good faith. - Punitive damages can be awarded if either has been found to have acted in bad faith. o Did the loss adjuster or insurer act promptly? o Did the loss adjuster or insurer act competently? o Was the loss investigated thoroughly? Proof of Loss - When a serious loss has occurred, most insurers will make an advance payment and an interim POL would be required. - AN interim payment will not cause estoppel if the insured is later accused of fraud. Loss adjusters should try their best to make sure this condition does not exist. - If the adjuster rejects a POL, insurers cannot rely on the contents of the POL to deny the claim. - The insurer must show the insured what was deficient in the document and ask to provide the info. - If an adjuster accepts a POL that was deficient and later denies the claim because the POL was incomplete, the insured would be granted relief from forfeiture because they did not have a chance to furnish supporting details. - Statutory conditions allow the insurer to invalidate a claim where the insured commits fraud or makes willfully false statements. - The criminal code has been revised to make insurance fraud a crime and insurers can deny a claim whether the POL had fraudulent statements or not. Exaggeration Expected - An experienced adjuster realizes an insured may exaggerate something when submitting a claim.

- Fraud would be upheld if most of the info was untrue or grossly exaggerate. - Timeframes for paying claims are in the Statutory conditions, fire claims must be paid within 60 days of the POL. - Ex: pg 6-10 Multiple Insureds - Law regarding multiple insureds is unclear when it concerns fraud on one party eliminating the changes of recovery for another innocent insured under the policy. - Policy wording around this is also unclear. - Correspondence should go to all insureds when there is multiple. Claim File Documentation - To protect you from bad-faith claims, the claim file should be documented to show how the loss adjuster handled the claim. - Clearly reflect insurer’s concerns and what was done concerning the investigation to allow the insurer to decide on coverage or the amount of the claim. - This is extremely important in large losses when the claim may not qualify for coverage. Insured’s Financial Situation - Never make a lower settlement offer based on the insured’s financial situation. - If you know an insured is in a bad place financially and you offer them less than the full value, you will be guilty of bad-faith dealings. - An insured’s financial position could be of interest as proof of motive to commit fraud. - Unsubstantiated rumors should not be documented unless there is good reason. Coverage Analysis - When the question of coverage arises, the adjuster should be clear on the issues. - Difficulty applying policy language can be perceived as though the language is ambiguous or the adjuster does not understand it. - You must be able to explain clearly and transparently how coverage was decided. - If you are unsure, refer the file to counsel and obtain an opinion to show that you were proceeding cautiously and were willing to have a higher-level review your opinion. - Adjusters should explain any areas of concern that may affect coverage under the policy contract. - Just because a claim is denied does not automatically justify a lawsuit for punitive damages. File Critiques - Supervisor’s notes criticizing the loss adjusters handling of a claim should not form any part of the claims file. - If an insured sues and insurer and has the file produced, one might conclude that the adjuster acted incompetently if such notes are in there. Esp. if the supervisor did not take corrective action. - Attempts to cover up bad-faith dealings or concealing evidence would be punishable by the courts and increase punitive damages or justify an award against the insurer. Correspondence - All correspondence is a part of the claims file. - Emails, notes, etc. may have to be produced and you may have to discuss any part of your file.

Conversations - Do not rely on your memory alone. - Your file should contain a log of all calls and other activities documenting the substance of any conversation, including negotiations, and the parties in the conversation. Negotiations - Commercial claims can be complex and result in strenuous negotiations. - Adjusters are frequently disputing the amount of a loss. - In serious losses, adjusters can make advance payments up to ACV of the claim. Procedural Manuals - Insurers may be asked by the insured’s counsel to produce their claims manual. - Any questionable claims practices can come under intense scrutiny. - If there is any indication that an insurers operation is not to play claims, there will be a lawsuit. - If there is any absence of polices, procedures, or ineffective training, this can prove a plaintiff’s claim that the insurer was incompetent. Responsibility of Expert - When the insurers decide on a claim based on an expert’s opinion, the insurer must take responsibility for hiring the expert. - Insurers have to hire reputable and competent experts, or they will not be able to defend against a punitive action suit by arguing that is relied on its expert’s report and they were incompetent. Privilege - If the insurer is sued, counsel will avoid producing the claims file. - Attorney/client privilege and work-product privilege provide some protection. - If an insurer believes they are operating in good faith they can waive privilege and disclose the info. - Documents shared with an insurer or outsiders are not privileged. - To claim privilege over a document it must meet a two-part test, 1. Was litigation a reasonable prospect at the time the document was produced? 2. If so, was the dominant purpose for the document’s production to conduct or aid in the conduct of litigation or to obtain a legal opinion? - If the answer to both is yes, the document is considered privileged. - However, courts have maintained, when the dominant purpose for a document is for the insurer to decide whether to defend an anticipated claim, it is not privileged. Other Sources of Information - In addition to interviewing the insured and witnesses’ info can be found on public sources, professional directories, newspapers, magazines, property records, and court records. - When researching, review the underwriting file to ensure that the insured did not misrepresent any facts about the risk when it was written and did not report a material change. - Police and file reports can be requested but a lot of the time they are redacted due to privacy laws.

Privacy Legislation - Individuals have a right to know why personal information is being requested and the purpose that it will be used. - People also have a right to examine personal information that is kept on file. - The Personal information Protection and Electronic Documents Act was enacted to balance an individual’s rights of privacy with an organization’s need to collect, use, or disclose such info for legitimate business purposes. - The IBC developed a checklist-model guide to personal information for IBC members. - adjusters need to familiarize themselves with each jurisdiction’s legislation. - Each company must appoint a privacy officer responsible to protecting personal info collected by the organization. - The requirement includes brokerages, insurance companies, and independent adjusting companies. - Insurers must confirm that hired independent adjusters adhere to legislation and adjusters must ensure any party they hire are also in compliance. - Some jurisdictions have enacted their own privacy laws that adjusters need to know. - Laws often focus on consent to collect or use info for an expressed purpose. - If written consent is required, it is easier for an adjuster to obtain consent at the start of their investigation when the claim is first reported. 3 – Basis of Settlement Settlement - Policies outline the basis for settlement. - Endorsements may be in effect to grant the insured replacement cost coverage. - Replacement cost endorsements are often subject to, o Replacement to occur with due diligence and dispatch. o Replacement to take place on the same site or adjacent site. o Settlement on a replacement cost basis to occur once the replacement has been affected by the insured. o If the insured fails to comply with the terms and conditions of the RC cost endorsement, then the basis of settlement reverts to the original policy terms. - A special basis of settlement applies to claims for tenant’s improvements on this type of commercial coverage. - When repairs are completed with due diligence, the insured will be entitled for collect the amount expended on the repairs as long as it does not exceed the ACV of the tenant’s improvements. - When repairs are not completed, the policy covers the potion of the original cost of the damaged improvements that the unexpired term of the lease at the time of loss bears to the period from the date such tenant’s improvements were made to the expiration date of the lease. - The calculations is, Unexpired term of the lease x original cost Date improvement made to expiration date of lease. - The policy may cover only a portion of the cost of improvements and betterments. - Contracts must be studied.

- If repairs are not completed the insurer may be liable for only a portion of the loss. Valuing Destroyed Property - The most common way to evaluate ACV is to subtract a depreciation factor from the replacement cost of the item ( replacement cost less depreciation). - There may be more appropriate ways to determine value. ACV can be calculated by using the market value of the property. - The above method was used in Company v. Colonsay Hotel when the insured building had very little economic value even though rebuilding it would have cost a ton of money. - Insured’s are likely to claim the cost to rebuild, but it may be better to consider what the property was worth to the insured at the time of loss. - The true value of a property to the insured is the income produced by the property ( the income approach). Appraisal - When disputes around the value of property occur, statutory conditions in the common law and territories provide an option for appraisal. - Appraisals are an alternative dispute resolution intended to be speedy and efficient. - Insured’s may have filed a POL before invoking an appraisal. - The appraisal process is similar across all jurisdictions, but adjusters should familiarize themselves with any differences. - In ON, legislation enables insureds to opt for an appraisal whether the policy is subject to statutory conditions. - Even if there is a suspicion of fraud, a formal appraisal process is still an option to come to an agreement on the value of property without admitting liability. Appraiser and Umpire Rules - Either party to the contract can invoke the appraisal clause - A letter is sent out notifying that the right of appraisal has been invoked. - Both will appoint an appraiser. - If one party does not want to participate the court will appoint an appraiser on their behalf - Once the appraisers are selected and umpire will be appointed. - If the appraisers and umpires become unable to act the insured or insurer may petition a judge to appoint a new appraiser/umpire Duties of the Appraiser - Appraisers inspect damage. - Usually when there is insufficient documentation concerning the valuation or existence of items claimed. - Appraisers have the ability to bind their principles to the amount of loss. - If the appraisers do not reach an agreement, the submit their differences to the umpire. - There are no formal rules, umpires usually ask for specific info related to the dispute issues. - Each side may be asked to prepare a narrative outlining the issues in dispute and submit the following documentation, o Appraisers’ opinion regarding the value

o Policy details, including the underwriting file. o Repair estimates o Any analysis comparing different estimates. o Completed POL o Evidence of payments already made. o Photos / video of the damage o Engineering / expert reports o Correspondence that related to the determination value. o Case law articles that support their view - Umpires’ control the appraisal process, and they have to approve the person’s involved. - Umpires must limit the discussion to appraisal concerns. If the discussion moves out of scope the umpire must bring it back. - Appraisals are not subject to an appeal unless fraud or bias has occurred during the process which must be proven. - Umpires with a conflict of interest could also qualify for appeal. Safety Issues for Loss Adjusters - The site of a loss can be dangerous (Fire loss – fumes emanation or structural integrity) - Use common sense and trust your intuition to protect yourself from injury. - Angry insured may threaten adjusters. Most times they are not serious, sometimes they are. - Adjusters need to remember that each jurisdiction work-safe regime has rules and regulations that need to be followed. Be aware of these. Handling Evidence - Act quickly to ensure that evidence is not lost. - Policy terms and conditions determine what evidence is required. Photographs - Take photos to document the loss, there should be a reason for each photo taken. - Pictures may be taken to preserve the cause of the loss or to show an object. - It can be useful to show the scale of objects through photos. - Taking photos asap after a loss may be crucial to preserve certain aspects that could be lost. - Be familiar with your camera and know how the picture is produced. - Take high quality images. - Digital cameras are great because you can view the photo right away and take more if needed. Photo Documentation - Certain cameras have high date and time imprinting which is useful for documentation. - High quality pics may not be required for claims that will resolve quickly. - The camera you need/use depends on the nature and purpose of the photos you need. - If the claim is complex or worth a lot, you may want to hire a professional to analyze the cause and take their own photos to enhance the quality of your file documentation. 4 – Defence Against Arson Insurance Fraud - Arson claims can be hard to deal with because they are tricky and difficult to prove.

Arson Insurance Fraud - Insurers must show that arson was set, that there was a motive, and the insured had the opportunity to set the fire. - The Technical Committee of the National Fire Protection Association (NFPA) has a guide to help improve the fire investigation process and the quality of information you need to gather. - It advocates using scientific tested evidence that has been gathered and analyzed to create a hypothesis that can be tested. - There are 3 classification types for fire origins according to the NFPA: incendiary, accidental, and unknow origin. - Investigation experts must have their facts tested if they are bringing forth a theory. - Adjusters can refer to published theories that have been reviewed. If a theory has been accepted by the scientific community, the theory will add weight. Motive - Motive on the part of the insured has to be proven for a defence against arson. - How would the insured profit from the arson? Is the insured under pressure to come up with money? Does the insured have a personal guarantee to the bank for a loan? Etc. Previous Damage - There may be concerns about the condition of the property prior to the loss - Was there dry rot, termite damage, or some other serious defect that rendered the building no longer useful? - Prior damage can be hard to detect in a total loss. You should look for prior inspections or evaluations to review. Financial Motive - A heavy debt load can be a financial motive. - Adjusters may hire forensic accountants to document financial difficulties. - Is the insured delinquent on any loans or payments? - Be aware of the items lost / reported in a claim. Are they typical to the nature of the business or home? Opportunity - Insurers must prove that the insured had opportunity to set the fire, or that an accomplice of the insured (someone hired) set the fire. - A criminal investigation may produce enough proof for a civil trial. - Evidence needs to show that it was extremely unlikely for anyone else to have set the fire. - Adjusters should also review the insured’s insurance info. Have they made lots of claims, are they new in business, do they know their broker/agent well, did they carry excessive limits? Suspicious Claims - Suspicious claims should be intensely investigated. - Just because it is suspicious does not mean it is fraudulent. - Be observant. Mortgage Protected

- If there is a mortgage clause on a policy the insurer may still be obligated to pay the mortgage for its interest in the property - Clauses typically protect a mortgagee from any breach of contract committed by the insured. - An insurer can then sue the insured for breach of contract to recoup the money they had to pay the mortgagee. - An insured who was motivated to commit fraud due to finances may not be able to reimburse the insurer. - Insurers may choose to pay the entire balance of the mortgage even if they are not required to so that they can assume the position of mortgagee and foreclose on the property to sell it. - Ex: pg 623 Restitution - If an insurer pays a claim and later finds out that it was fraudulent, they can take action to have the insured reimburse the insurance money paid. - Restitution can be awarded in criminal court cases, but the insurer has to make a formal request. - Civil actions can be instituted against ppl who have defrauded insurers. Insurers have sought to be repaid through the civil courts. - Actions ask for repayment of the funds obtained by fraud, the cost of investigation, and general punitive damages. Defamation - In litigious environments, adjusters need to be careful that their actions do not fuel a defamation suit. - Alleging arson in legal pleadings would likely not be sufficient to support a defamation suit or a malicious prosecution suit even if the insured was found not guilty. - An insured accused of arson may fight back aggressively and threaten a defamation lawsuit to intimidate the insurer. Polygraph Testing - Some insured’s accused of fraud insist on taking a polygraph test. - Submitting to a polygraph test is entirely voluntary. - An instrument is used to collect physiological data from the subject as they are questioned. - Using polygraphs to get to the truth are controversial, not widely used, and has limited acceptance. - Even researchers who believe that polygraphs can reveal deception agree that there can be false positives. - There are 3 stages to the test, o Pre-test interview o Collection of data o Analysis of data Chapter 7 – Commercial Property Losses 1 – Interpreting Commercial Policies

Commercial Policies - Policy coverage analysis starts with the declarations page which includes info about who is insured, the address of the property insured, and specific amounts of coverage. - Other entities with an interest in the property may be identified and added to the policy via endorsement as an additional insured. - An additional insured is a loss payee who whose right to indemnity is the same as the insured. - The dec page will also include the form number for the wording used. Adjusters should know if the wording is a standard wording or a manuscript wording. - Mortgagees and lienholders + their interests must be noted on the policy because any payment must include the lienholder as a payee. - Policy language will state if the lienholder has an independent right of recovery under the policy regardless of a breach of contract by the insured (fraud). Insurer Take over Title to Property - The insurer has options when they must pay a lienholder when the contract is breached. - The insurer can opt for a full assignment of the mortgage and increase the claim payment to pay off the mortgage in full. The insurer would then try to recover the loss payment from the named insured or foreclose on the property and sell it. - The property must have significant value to consider this option. Review Policy Wordings - Once the declaration page has been reviewed adjusters will move onto the policy wordings. - For each claim situation, the facts must be assessed against the exact terms of the policy document. The type of property insured, and the set of circumstances involved influence how to approach the claim. - The following principles have been used to interpret policy wordings: o What parties to the contract intended to accomplish should be enforced. Ambiguous elements should give effect to the reasonable expectations of the parties. o A policy should be read as a whole. o Words and phrases should have ordinary meaning unless defined otherwise. o Provisions providing coverage should be interpreted broadly in favor of the insured. o Exclusions should be interpreted strictly and narrowly against the insurer. o The contra proferentem rule applies when ambiguity exists in the wording. o A clause under review should have its intent gleaned from the policy. o The insured must prove that coverage applies. o The insurer must prove that an exclusion applies. - Ex: pg 7-4 Common Words and Phrases - Some words and phrases are subject to judicial review. - Adjusters need to be aware of the state of the law and developing legal trends. - Adjusters need to be aware that insureds faced with damaged property from a peril not insured now have motive to commit fraud. - A warranty, whether express or implied may limit coverage. - A promissory warranty requires strict compliance under all circumstances. If the insured does not comply, the insurer is discharged from liability as of the date of breach.

- A breach of policy warranty may void the policy ( ab inititio) or it may suspend the coverage under the breach is remedied. - The commercial building and stock form has 2 important clauses. The Breach of Condition clause keeps the policy coverage intact for losses that are not related in any way to the breach of warranty. (Ex: pg 7 5-6) Basis of Settlement - The policy will outline the basis of payment. - For many policies this is ACV - Most policies contain a waiver of coinsurance is the loss is under a certain amount. - If the loss is large enough to be affected by the coinsurance clause, the adjuster must calculate the total value of all the property insured under the item insured. (Ex: 7-6) Condition of Risk Referred to Underwriters - You may uncover info showing a risk has been misclassified or does not meet the underwriting criteria. In these situations, the adjuster must consult with underwriters. - Underwriters may decide to increase the premium or take another action. - If there is enough cause to cancel a policy mid-term the adjuster has to consider how this will impact their ability to deal with the claim effectively. 2 – Urgent Claims Action Documenting the Scene - Adjusters take photos to preserve evidence. Some may take videos or digital recordings. - Taking photos early on is crucial to preserving evidence. - After a serious fire the insured has to help secure the premises immediately to protect it from further damages, possible liabilities, or to start clean-up operations. - Municipal authorities may order that walls be taken down or put up. Adjusters can help enlist engineers or general contractors to ensure the work is done properly. - After emergency work is complete, a GC will be asked to estimate the damages according to the scope of repair parameters prepared by the adjuster. Scoping Insured Damage - Adjusters work with GCs to determine the scope of damages. - It may not be clear whether an item needs repair or replacement. These items should be identified as possible additions to the estimated cost of repairs. - Items that require replacement have salvage value ( the remaining value of property after severe damage). - When differences between estimates must be reconciled, the adjuster will look for overstated or missed items. Maybe more work is being done than required, or the price of an item is inflated. Salvaging Operations - Adjusters need to be quick to recognize any opportunity to salvage merchandise or equipment. - Property cannot be turned over to an insurer unless they agree to accept it. - If the insured keeps the property, they will make salvage decisions. The adjuster can help and Salvors (someone who recovers or assists in recovering damaged property) can offer advice.

- There is usually a narrow timeframe for salvaging operations to be effective. The more time that passes, the value of the damages goods goes down. - Reputable professional salvors and liquidators may offer appraisal services, out-of-market sales (direct sale to wholesaler), or auctioneering services. Ex: pg 7-9 Insured Salvages Goods - An insured may recondition or repair partially damaged stock and sell it as merchandise. - The claim would be settled for the cost of reconditing the property. - If the insured retains the damaged goods and holds a “fire” sale the loss would be the difference between the normal sale price and reduced sale price. Water Damage Losses - The cause of the water damage is key to any investigation. - Named-perils policy wordings cover only water that has escaped from fire protection equipment, such as sprinklers. - The commercial building, equipment and stock form covers against all risk of direct physical loss, subject to some exclusions related to water. - Water-related perils typically excluded under broad form coverage are, o Flood including waves, tides, tidal waves, tsunamis, etc o Seepage, leakage, or influx of water derived from natural sources through basement walls, doors, windows, or other openings therein. - Ex: 7-9 Commercial Fire Losses - Examine where the fire originated from if the circumstance permit. - In restaurants fires often originate with cooking equipment. Ask about the history, maintenance, use, cleaning schedules, etc Different Types of Equipment - Restaurants may have very specific appliances or equipment (ex: wood fire pizza oven, deep fryers and grills) - These appliances are usually equipped with devices to control fire exposure. Failure of Prevention Equipment - Fire-suppression equipment may fail. - Subrogation against contractors who inspect, test, and install equipment for owners may be subject to subrogation. - If there were no sprinklers or they were not working the underwriter should be notified incase there is a warranty. 3 – Other Losses Special Circumstance Losses - There are cases where loss circumstances may be unusual. - Stock, equipment, builders’ risk, contractor’s equipment floater, installation floaters, and equipment breakdown are some.

Stock Losses - For finished goods and goods partially manufactured, indemnity is restricted to the cost of materials plus labour and other incidental charges needed to bring the product to the same state it was prior to the loss. - Stock that is sold and awaiting delivery is valued at the price it was sold less any discounts. - Unsold stock is assessed at ACV unless an endorsement amends coverage to provide an agreed cash value for finished stock. - If items are repairable, the repair cost is the settlement if it does not exceed the ACV of the goods. Builders Risk Losses - Adjusters must be wary of unforeseen problems that have arisen since construction begun, soil conditions, water table levels, cost increase on materials, etc. - A BR covers the owners, GC, and sub-contractors. - Blanket coverage is designed to avoid disagreements if a claim occurs. - Policies usually contain a subrogation clause that waives all rights of subrogation against any party insured by the policy. - A RB broad-form policy provides replacement cost coverage. This is the cost of replacing, repairing, constructing, or reconstruction the property on the same site with new property of like kind and quality for the same occupancy as was originally intended. Contractors Equipment Floater Losses - Non-standard wordings that insurers large equipment used for road building, excavation, construction, snow removal, etc - It can also insure small equipment and hand tools. - Basis of settlement may be ACV or RC - Some wordings exclude rented or leased equipment. - Some forms automatically include newly acquired equipment if it is reported within a specified timeframe. - Property will be reported on a schedule. - Property may be insured on a blanket basis with a specified limit per item. - Coinsurance clauses are commonly used to penalize an insured for not insuring property to value. - Ex pg 7-12 Installation Floater Claims - A GC that installed furniture and fixtures has an interest in the items until they are installed. - Once installed the items fall under the owner’s policy. - Installation floated insure property that will be installed on a job for named perils or for all risks under a broad-form wording. - Contractors who install equipment that is subject to testing will have testing coverage added to the installation floater. Ex: 7-13

Equipment Breakdown Losses - Equip breakdown is a specialized area and specialists usually attend these losses. - It covers direct losses caused by an insured peril to equipment. - The basis of settlement would be the lessor of the cost to repair the damaged property or the cost to replace it with property of like kind, capacity, size, quality, and function. - There is no deduction for depreciation unless the repairs occur 12 months after the DOL. - Property policies cover loss form fire, smoke, water used to extinguish a fire, and combustion. If equipment is damaged due to these, the property policy will cover the equipment. - When arching occurs that causes a fire it can be difficult to separate damages within the equipment. In this situation the equip breakdown and property insurer will share the loss. 4 – Subrogation in Property Claims - Subrogation – a legal process where an insurance company, after the payment of a loss, is assigned the rights of the insured to recover the amount of the loss from those who are legally liable for it. Conditions for Subrogation - Subrogation potential in commercial claims is like other claims. Managing the Insured’s Expectations - Do not promise the insured an attempt at recovery will be successful. - Information and details may change, and recovery may not be possible. - You must manage the insured’s expectations and encourage a cautious outlook. - Parties who are liable for the cause of loss must be put on notice as soon as possible. - Letters should be sent confirming the damages and asking for payment. The insured may be added to these letters if they want to pursue recovery for amounts not covered. - Policies require the adjuster to protect the insurer’s right to subrogate against another party. - The cost benefit of subrogation must be evaluated. The possibility of recovery may be low, or the responsible party may not have assets - Suing someone who is broke may be beneficial when an uncontested judgement can be obtained at a low cost. This person may come into money or die. - When an insurer recovers part of a claim via subrogation sometimes the insured will be entitled to recover their loss in total and the remaining balance goes to the insurer - In ON the amount recovered is split between the insurer and the insured. Testing Evidence and Checking for Product Recalls - Investigate whether a history of product recalls exists for any equipment thought to be the cause of a loss. - When equipment goes through destructive testing by a third party, the adjuster attempting to recover on a claim caused by a defective product should participate so that evidence is not lost. - Always use a credible firm or vendor in case the claim ends up in court. - The amount of recovery is often negotiable. A wrongdoer may not be required to pay back the full amount recoverable.

- Ex: pg 7-16 Adjuster’s Reports - A preliminary report might be sent out to the insurance company within 24 to 72 hrs. - When the loss is a serious one, the basic policy and loss info might be sketchy, but the adjuster will try to estimate a tentative loss amount for reserving purposes. - The report will outline recommendations for future handling of the file. - Each insurer may have unique loss reporting requirements for loss adjusters. Detailed Adjuster Reports - After the preliminary report, a detailed report will follow in 15 to 30 days. - This report will include a detailed narrative of the loss and an explanation of the damage issues, repair estimates, salvor’s offers, copies of contracts, transcribed statements, and a reserve update. - When equipment or stock are damaged an insured requires an advance payment to mitigate their risk approval should be obtained from the insurer. - Review case study on pg 7-17. Chapter 8 – Business Interruption Claims 1 – Business Interruption Insurance Business Interruption Coverage - Intended to return the business to the financial condition that would have existed if the incident did not occur, subject to policy limitations. - Determining the financial condition requires recreating the conditions that would have existed during the period of loss and projecting the operating results that could have been expected. - Business owners will agree that there is never a normal due to financial flux, therefore BI claims can be challenging to quantify and are subject to negotiated settlement. Forms of Coverage - Two forms of BI coverage are widely used in Canada, both as endorsements to the property policy. - The forms are, the profits form and the gross earning form - Both provide coverage for damage caused by an insured peril to buildings, structures, machinery, equipment or stock described on the premises. - The forms use different terminology and approaches, but include coverage for o Loss resulting from a reduction in sales (also called “turnover”) o Loss resulting from an increase in costs, over and above what is normal to avoid a reduction in sales. Profits Form - Coverage is provided for Gross Profits (the sum of the net profit plus the insured’s standing charges aka overhead) - Standing Charges – expenses that do not change in direct proportion to sales (fixed and semi- fixed costs such as rent, taxes, and insurance). Specifically exclude payroll. Ordinary payroll is not insured unless an extension has been added to cover it.

- Expenses are classified as fixed, variable, or semi-variable. o Variable expenses vary in direct proportion to sales. If a sale is lost, the variable expense is not incurred and does not need to be insured. o Standing charges (fixed expense) continue and therefore need to be insured. - If standing charges are reduced or cease due to the loss, the savings are deducted from the loss of gross profit otherwise determined. - The form lists 3 standing charges that are excluded and not classified as a standing charge 1. Depreciation of stock 2. Bad debts 3. Wages and salaries other than salaries to permeant staff and wages to supervisors and important employees whose services would not be dispensed during a business interruption. 4. Ordinary Payroll Indemnity Period - The indemnity period under the profits form extends until the financial results of the business are no longer affected by the direct damage, subject to a maximum period of 12 months. - If repairs or rebuilding are going to take longer the period may be extended. - The standard profits form includes a 100% coinsurance requirement. The insured’s recovery will be proportionately reduced if the purchased coverage is not sufficient to cover the gross profit projected for the maximum indemnity period. - Optional coverage for ordinary payroll can be purchased for a specified period (90 or 180 days). Gross Earnings (Mercantile or Non-manufacturing) Form - Gross Earning Coverage - BI Insurance that covers the insurer’s reduction in gross earnings suffered as a result of a direct damage loss. Coverage includes profits, continuing expenses, management payroll, and ordinary payroll. - Ordinary payroll is not included in the above as an item to be deducted from net sales, it is automatically insured in the standard gross earnings form unless a payroll option is selected to limit or eliminate the coverage. - Unlike the profits form, the standard gross earnings form does not contain a max indemnity period. - Compensation stops once the property is restored or could have been restored regardless of if the operations continue to be affected.

- The coinsurance clause restricts recovery if the amount of coverage purchased is insufficient to cover the stated percentage of the defined gross earnings in the 12 months following damage. - The coinsurance percentage may be 50% – 80% - If payroll is limited or excluded the coinsurance must be 80% Gross Earnings Manufacturing Form - Terms and conditions are like the non-manufacturing form except for the definition of gross earnings. - Gross earnings are based on the sales value of production rather than the sales. - The difference reflects that a manufacturer’s profit is considered “earned” when production is complete. - Finished stock is excluded from the indemnity agreement as an item that can give rise to the BI claim since it represents past production, earnings are considered complete. Other Income Forms - Business income forms were introduced to Canada in the mid-1990s are standalone business interruption policies. - The new policies combine several of the concepts from the traditional profits and gross earnings forms to result in similar coverage 2 – Ten Steps to Settlement Ten-Step Claims Process - A 10-step process to loss adjusting addresses the issues that may confront the loss adjuster. 1. Understand the Coverage o Review policy wordings (insuring agreement) as a whole, understanding the coverage is the foundation of being able to assess the loss. o Once you understand standard wordings, variations will be easy to spot. o A solid understanding of coverage will be required to determine the compensable period of loss (indemnity period), the changes and expenses that are insured, appropriate treatment of payroll costs, and the application of coinsurance. 2. Understand the Business o Crucial to adjusting the physical damage and business interruption claim. o Research and learn about the business (internet, reviews, publications, meeting mins) o Site visits after the incident provide a good opportunity to gather info about the biz. o What is the legal form of the business (partnership, sole proprietor, etc.) o How is the business organized? o What are the key operational factors? 3. Identify the cause of damage and expected impact on business o BI coverage compensates the insured for losses that result from direct damage to property which is an important distinction. o Understand the damage and its impact on the operations to identify how to determine the losses resulting from the damage. Ex: pg 8-8 o Details around the timeline to repair/rebuild determine the expected duration of a BI loss.

o After extensive damage and insured may not rebuild. An estimate of how long it would take to rebuild is still required since BI coverage will respond based on that timeline. 4. Help the insured to recover quickly from damage o Adjusters see disastrous events often, insureds do not. The adjuster experience can help the insured expedite the business recovery and minimize the BI loss. o BI coverage is often referred to as “time element coverage” highlighting the link between time and coverage. o Consider requests for interim payments, offer advice, help the insured with their recovery plan, and keep up to date with contractors to prevent undue delays. 5. Estimate required reserve o In complex BI cases the insurer will engage an investigative or forensic accountant o Before establishing a reserve its important to gather as much info as possible o Accurate reserves are important because it is a reference point throughout the claim. o If you need to increase a reserve, it will be easier to justify if notes and reports are clear. 6. Gather Financial information and records o Forensic accountants will assist with gathering supporting docs and calculating the claim. o It is important for the adjuster to understand the evidence as well to evaluate the accountant’s position. o There are no absolute standards to the books and records a biz has to maintain. o Basic documentation generally includes,  Operating statements (P&L statements and Income Statements)  Forecasts (budgets) for future operating results  Sales records and significant contracts with customers or suppliers  Production records  Equipment maintenance program  Payroll records  Invoices for additional expenses 7. Examine business outlook o The business outlook has to be considered to determine the operating results that would have been achieved if there was no loss. o Historical info can provide information, but its important to be aware of the external business environment, to the extent that it affects operating results o Assessing the business environment includes investigation the activities of competitors, regulatory bodies, suppliers, and customers,  Is there a new competitor that may erode the insured’s market share?  Have more restrictive regulations been adopted, which require more quality assurance that will reduce productivity?  Has a major supplier declared insolvency?  Have customers been steadily decreasing? 8. Calculate the loss o The insured is obliged to prepare the claim submission o Others will be engaged to assist with calculations o It is the loss adjusters job to make recommendations to the insurer so they will assess loss calculations whether they are prepared by the insured, their own expert, or an expert retained by the insurer.

Loss Calculation Framework a) Calculate the insurable value using the profit and loss statement for the most recent financial year that ended prior to the loss, adjusted to reflect the results that would have been obtained if there was no loss. b) Determine the rate of contribution (rate of gross profit/gross profit percentage or rate of gross earnings/gross earnings percentage) using the insurable values as percentage of sales. c) Calculate the rate of recovery by comparing the insurance in force with minimum coverage required (coinsurance clause) d) Determine the loss of sales during the indemnity period as a direct result of the damage. The sales loss is the diff between the projected sales and the actual sales. e) Calculate the lost contribution by applying the rate of contribution to the sales loss f) Accumulate the additional expenses necessarily incurred to mitigate the sales loss. Compare these expenses to the avoided loss by applying the rate of contribution to the avoided sales loss (economic test). g) Deduct the savings in insured standing charges (profits form) or the non- continuing expenses (gross earnings form). h) Calculate the loss related to ordinary payroll if separate coverage applies (profits wording provides optional payroll coverage) i) Apply the rate of recovery to losses where a coinsurance clause applies. j) Determine the amount recoverable subject to the policy limits and not beyond the actual loss sustained. Also consider any waiting periods and deductibles. 9. Examine related coverage o Related coverage should be reviewed so that items are not claimed twice. o Extra expense coverage may be available for expenses incurred that do not meet the economic test associated with the additional expense coverage in the BI policy (Pg 8-12) o Although, the increase in cost of working under the BI policy may be limited to the loss of gross profits avoided, the excess expense of maintaining operations may be claimed under extra expense as an additional expenditure to continue operations. 10. Settle the claim o Since BI calculations are based on projections and “what if..” it is not possible to determine the loss with precision, they will always be subject to negotiation. o The adjuster needs to manage the competing interests during negotiations and make every effort to ensure a timely and equitable settlement. ** Review Case Study on page 8-13. Chapter 9 – Crime Claims 1 – Principles of Investigating Claim Losses

Basic Principles of Crime Investigation - The basic principles of investigating crime claim vary little from other claims - Ppl involved in the investigation, evaluation, and settlement of a claim must always consider the consequences of a course of action concerning the claim issue - Once coverage is confirmed, the basis of settlement is determined, and settlement is next. - Settlement is either negotiation or a denial and it may include salvage operations or recovery efforts. - Adjusters analyze and assess the policy contract or bond. They must understand the laws applicable to the contract and investigative issues. Dishonesty by Employees and Crimes by Outsiders - Crime losses can be divided by those committed by strangers and those committed by employees - Employee dishonesty insurance (fidelity insurance or fidelity bonding). - The fidelity bond is an agreement to answer for the debt of another. - The insurer will answer for any debt owed to the employer because of the employee’s dishonesty. - The 3 parties to the bond are, the principle (the employee), and the guarantor (insurer), and the oblige (the employer). - When a commercial insurer provides a fidelity bond, it is an insurance contract and governed by the same laws as an insurance policy. - Utmost good faith and the rules of disclosure apply. - A blanket policy covers theft and dishonesty claims, with separate insuring agreements applying to various crimes - 3-D policy  dishonesty, disappearance, and destruction cover money and securities. - Theft of stock is covered by property policies - When insureds make a claim for items stolen, they must submit proof to show  the value of the items stolen, existence of the items, ownership of the items. - Insureds are required to submit a POL, if they cannot meet that contractual requirement they can ask for an extension or file an interim POL. Independent Expert - The adjuster will assess whether the investigation requires an independent expert of specialized service company. - Evidence must be developed to substantiate whether. The policy covers the claim and what the claim is worth. - Expert reports are a source of evidence. Wrongful Dismissal Suit - An employee who has been wrongfully dismissed for stealing may sue the employer - When faced with a wrongful dismissal suit, the employer must prove the dishonesty to justify the dismissal, and also justify the dishonesty claim. 2 – Claim Coverage Issues Employee Dishonesty Coverage and the 3-D Policy

- The dishonesty, disappearance, and destruction policy (3-D Policy) covers employee dishonesty, crime exposure, and physical damage to money and similar property - Coverage is usually added as a rider to property and liability coverage in a package - There are 5 standard insuring agreements (pg 9-6). - Other misc. insuring agreements can be added by endorsement for burglary and theft of merchandise, stolen company cards, forgery of incoming cheques, etc. Losses Sustained During Policy Period - Coverage for employee dishonesty applies to losses sustained during the policy period - The discovery period, the time in which you can report the claim, is 2 years after the policy expires - Under bond policies other than the 3-D policy, the extension of coverage is known as the superseded suretyship rider – a clause that extends its coverage provided by the previous fidelity bond but that is not recoverable from the latter due to the fact the discovery period has lapsed. Establish Discover Date Manifest Intent Exclusions Employee Dishonesty Claims Process